The number of insurance agency mergers and acquisitions in the first half of 2016 ranked as second-most-active six-month period since OPTIS Partners began tracking M&A transactions in 2008.
There were 232 announced deals over the period, one fewer than the 232 done in the first half of 2015, according to OPTIS Partners’ M&A database. The database covers U.S. and Canadian agencies selling primarily property-and-casualty insurance, agencies selling both P&C and employee benefits, plus those selling life insurance and financial services and employee benefits only.
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“Buyers and sellers continued to feed their hearty appetites for deals and push up the M&A activity trend line,” says Timothy J. Cunningham, managing director of OPTIS, an investment banking and financial consulting firm specializing in the insurance industry.
Agency M&A activity has climbed steadily over the past four years, other than the spike at the end of 2012 and related drop in early 2013 related to the tax-law change, he added.
“We anticipate the recent strong industry-consolidation trend will continue for the near term as acquisitions are an important growth strategy for many firms, especially those backed by private-equity capital,” Cunningham says.
The report notes that agency valuations are now near their peak and that strong buyer interest is pushing up prices.
“If you’re an agency owner thinking about the best time to put your agency in play, consider taking action sooner than later,” says Daniel P. Menzer, a CPA and partner with OPTIS.
The survey warns, however, that prospective buyers need to “crunch the numbers and do due diligence” before undertaking an acquisition.
“A premium price paid for acquisition can have significant adverse implications on the long-term viability of your agency,” says Menzer. “If the agency you buy does not perform up to snuff and you do not have the capital base to absorb the shortfalls, you can get in a lot of trouble.”